Battery Park gets battered

Wall Street's bedroom community feels pain of ground leases and finance fallout
By Alison Gregor | September 30, 2009 01:55PM

Despite its prime waterfront location and its disproportionate amount of cutting-edge “green” architecture, Battery Park City is getting slammed by the downturn more than many other Manhattan neighborhoods.

Stephen and Mary Lacoff, for instance, have been trying to sell their 1,158-square-foot two-bedroom at 2 South End Avenue for more than a year now. Despite dropping the asking price from $1.385 million to $999,000, they’ve received no offers.

The apartment — which, like everything in Battery Park City, is in a land-lease building — has some of the higher ground rents in the area, contributing to common charges of $2,003 a month, or $1.74 a square foot.

“There has been some intermittent interest, but no offers,” Stephen Lacoff said. “What I’m taking from that is there’s not a huge demand.”

The Battery Park City area, which is on the West Side at the southern tip of Manhattan, was constructed on top of the land excavated when the former Twin Towers were built. It has 34 residential buildings, including high-profile towers like developer Andrew Heiberger’s One Rector Park, the Visionaire by the Albanese Organization and Rector Square, the embattled condo conversion initially developed by Yair Levy. The neighborhood, which has a reputation as something of a suburban oasis on the fringe of the Financial District, surged during the boom.

But it’s been punished by the turmoil on Wall Street (which affects the neighborhood greatly because so many of its residents work in finance) and the bursting of the real estate market bubble.

“It’s been difficult down there,” said Heather Stein, an agent with Brown Harris Stevens, who owns an apartment in Battery Park City’s Cove Club, sells there regularly and is representing the Lacoffs.

One Sunday in the middle of last month, Stein held six open houses in the Cove Club. “I’d say there are a lot of motivated sellers there right now,” she said. On the plus side, “the community is still prospering, and residents are excited about the opening of Goldman Sachs,” Stein noted, referring to the nearby tower that will become the firm’s headquarters later this year.

Meanwhile, the area is also feeling the effects of another financial issue: Because the land was essentially created by the government, each building has a land lease, and developers there must pay rent to the Battery Park City Authority, which owns the grounds. The costs are passed on to residents, who pay the ground rents in their monthly charges.

Each building has a different arrangement, depending on the deal its developer struck with the state. Some rents are higher than others, and many buildings are scheduled to see their rents reset and increase soon, according to the Authority. Ground rents reset every 25 years.

Obviously with the Great Recession, now is not the best time for cost increases. In fact, three buildings that had been scheduled to see their rent to the Authority spike between now and 2012 — the Regatta, Liberty View and Battery Pointe — have worked out a deal with the state agency for slower increases.

Meanwhile, representatives for the 11 buildings in the southern swath of Battery Park City have approached state Assembly Speaker Sheldon Silver about reducing their scheduled increases altogether.

The buildings’ leases provide for their rent to increase at 6 percent of the leased land’s fair market value, and there are 2,300 units affected, according to Silver’s office.

“I am very concerned about the impact of these increases on the entire Battery Park City community,” Silver said at a July meeting with residents. “I believe that these increased payments, particularly in these tough economic times, threaten the financial stability of the buildings and could force residents out of their homes.”

The Authority uses the rent money for operating and debt cost. The surplus goes to the city, which has used the money to build affordable housing in the past.

Kenneth Tsui, a broker with CCG Realty Group, said the sales prices of Battery Park City apartments are now about 20 percent lower than their comparables elsewhere in Manhattan. That compensates for the ground rents, and the fact that the neighborhood is in a flood zone, which tends to make lenders wary, he said.

Melissa Cohen, a sales director at Buttonwood Real Estate, said that 333 Rector Place, also known as One Rector Park, a former rental building newly converted to condos, is undergoing a re-pricing. She declined to provide additional details.

The credit crunch has obviously been an obstacle to selling. One of the recent hurdles has been that Fannie Mae has been discouraging banks from making loans on apartments in buildings where a single entity owns more than 10 percent of the units.

In Battery Park City, at least four buildings where the owner, the Milstein family, has retained blocks of units, have been struggling as a result. A representative with Milstein Properties’ Milford Management said the company is working with Fannie Mae to resolve the situation and get the buildings pre-certified.

Meanwhile, Terry Lautin, a vice president with Prudential Douglas Elliman and a longtime Battery Park City resident, has a listing for a two-bedroom at the Residences at the Ritz Carlton at 10 West Street for $1.785 million. The unit has been on the market for almost a year.

“It’s a mortgage issue that’s problematic down here,” Lautin noted. “In this credit-crunch atmosphere, everything has changed, and all of a sudden, it has become a huge issue again.”

Tsui said that, while the market for refinancings has recently picked up in Battery Park City, mortgages are still difficult to get unless the buyer makes a large down payment, or the bank is only being asked to finance 20 or 30 percent.

Julia Pilosio, a New Jersey agent who bought a one-bedroom for her son at the Cove Club, has had the apartment on the market for five months, repeatedly dropping the asking price and settling at $321,000 in the middle of last month.

Pilosio purchased the 548-square-foot unit for $365,000 in the battered post-9/11 real estate market. She blamed the lack of buyer interest in her apartment on the high common charges, which are now $1,355 a month, or $2.47 per square foot, having increased almost $500 since she first bought the apartment.

Cove Club owners have paid the highest ground rents for the longest time in Battery Park City, according to the Authority.

“It’s gorgeous here, and I love to walk out and see the beautiful parks and the water,” Pilosio said. “But don’t let’s cut off the head of the golden goose here; these common charges are ridiculous.”

Tom Tam, a broker with Battery Park Realty, said desperate “wannabe” sellers may be dropping prices, but residents who have the wherewithal are holding onto properties. “They believe in two or three years, after the World Trade Center is rebuilt, 70,000 to 80,000 people will come back to work again, and the market will go back up.”